Allergan, which makes the popular anti-wrinkle treatment
Botox, said it believed Valeant's business model was
unsustainable and that the offer was too risky because of
uncertainty about the company's long-term growth.

"Valeant's model of cutting and slashing really doesn't work
for more than a very short period of time," Allergan Chief
Executive Officer David Pyott said during a conference call with
investors to explain the rejection.

He said Valeant's plan for billions of dollars in cost cuts
would prevent Allergan from delivering growth that it could
produce on its own, and he set a target of a 20 percent to 25
percent increase in earnings per share in 2015.

Valeant and activist investor Bill Ackman, who has a stake
of almost 10 percent in Allergan, made an unsolicited cash and
stock offer for the company in April.

The next step in the Allergan-Valeant battle for control is
for Valeant to raise its cash and stock offer and to present the
offer to shareholders, analysts said on Monday.

"They're going to have to take this directly to shareholders
and frankly this looks like a big media battle," said David
Amsellem, an analyst at Piper Jaffray who covers both companies.
"I think that Valeant really, really needs Allergan."

Allergan and Valeant have both said that they are currently
meeting with large shareholders. In April, Valeant said that
excluding Ackman's stake, about 56 percent of Allergan
shareholders were also Valeant shareholders.

Valeant said last week that it is planning to organize
Allergan shareholders to call a special meeting to push out
Allergan's board of directors. It also said it may call a
referendum to see if shareholders support Allergan-Valeant
negotiations. It is unclear how that would work.

In a regulatory filing on Monday, Ackman's hedge fund
Pershing Square Capital Management said that it has requested a
complete list of holders of record in Allergan to be able to
"communicate with fellow stockholders of the company."

The Vanguard Group, State Street Global Advisors and
BlackRock rank among Allergan's 10 largest investors, according
to data from Thomson Reuters.

Valeant spokeswoman Laurie Little said the company was
disappointed that Allergan had rejected the offer and that it
remained committed to the transaction.

Allergan had said it was considering the offer, but within
days, it adopted a so-called poison pill provision to slow a
takeover. If Ackman's Pershing Capital raises its stake beyond
the 10 percent threshold, other investors could buy discounted
shares.

Allergan has also been seeking other buyers such as Shire
Plc, according to sources familiar with the matter.

Pyott said during the call that external moves were options,
"but it would be totally premature to discuss them."

He also said he was watching the national debate about
companies that move their tax bases outside the United States
and that he expected changes to U.S. tax rules.

VALEANT'S TRAJECTORY

Laval, Quebec-based Valeant has acquired roughly a
half-dozen companies in the last two years and has set its
sights on becoming one of the world's five biggest drug
companies.

Valeant said in announcing its April 22 bid for Allergan
that it expected at least $2.7 billion in annual cost cuts.
Valeant said last week that Allergan spent too much on research
and development and that its selling, general and administrative
expenses were excessive.

Allergan said on Monday that it expects double-digit sales
increases and annual compound growth in earnings per share of 20
percent over the next five years, helped by recent and expected
drug approvals.

Valeant shares have risen 4 percent since announcing the
offer, while Allergan shares have gained nearly 14 percent. In
afternoon New York Stock Exchange trading, Allergan fell 1
percent to $159.55, while Valeant was off 1.3 percent at
$129.42.
(Additional reporting by Esha Dey in Bangalore, Svea
Herbst-Bayliss in Boston and Rod Nickel and Euan Rocha in
Toronto; Editing by Maju Samuel, Lisa Von Ahn and Tom Brown)

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